Goldman Sachs's Management Should Be Replaced for `Ineptitude,' Bove Says

By Christine Harper -
May 3, 2010

Goldman Sachs Group Inc. should
replace its top executives because they failed to understand the
politics of the financial crisis and mishandled regulators’
claims of fraud against the firm, according to Richard Bove, an
analyst at Rochdale Securities.

“Goldman is going to have to pay a high price for its
ineptitude,” Bove wrote in a note to investors yesterday. “Its
shareholders already have.”

Goldman Sachs lost 21 percent of its value on the New York
Stock Exchange in two weeks after the company was sued on April
16 by the U.S. Securities and Exchange Commission, which said
the New York-based company misled investors in a mortgage-linked
investment. Federal prosecutors are also investigating the
matter, people familiar with the matter said last week, and
Goldman Sachs executives were grilled by a U.S. Senate panel.

Senior management failed to understand that the government
has chosen to make Goldman Sachs “an example of all of the
evils in the financial system that caused the ‘Great
Recession,’” Bove wrote. The company behaved defensively and
with technical arguments, rather than proactively by redefining
the debate and talking about the service that Goldman Sachs
provides to the country, according to Bove.

“It should have understood the size and enormity of the
forces being brought against it,” Bove wrote. “It did not.
Thus, its responses were weak and ineffectual.”

$1 Billion Settlement

Bove wrote that he expects “high-level executives are
going to have to be removed from their positions both in the
management suite and from the board of directors.” He also
expects that the firm will pay a fine of at least $1 billion to
settle the SEC’s suit and will need to replace its legal team
with one that has greater “Washington know-how.” Finally, he
expects the firm will develop a new mission statement.

Still, Bove said he doesn’t advocate selling Goldman Sachs
stock.

“Despite its political naiveté, it is still the best
trading company in the world and the world needs to trade,”
Bove wrote.

The shares, down 11 percent this year, rose $4.30, or 3
percent, to $149.50 at 4 p.m.